IDE.L Regulatory News (IDE)

Castle Street Investments plc

Final Results for the year ended 31 December 2014

Castle Street Investments plc (AIM: CSI), the investing company, is pleased to announce its final results for the year ended 31 December 2014 ('FY 2014').

Results highlights

· Transition of the Company from an online dating business to an investment vehicle completed in December 2014

· Completion of Disposal of Traditional Dating Assets for a consideration of £3m

· Payment of a reduced deferred consideration for casual assets has been accelerated with £11.5m to be received by 15 December 2015

· Cash at the end of December 2014 ahead of expectations at £12.1m

Post period highlights

· The deferred consideration of £0.75m in respect of the traditional asset sale was received in February 2015

· A further £4m of deferred consideration received since 31 December 2014

· Cash at the end of December 2015 expected to be £2m ahead of forecast at £20m, £0.28 per share

· Distributable reserves anticipated to be in excess of £19m following approval of capital reduction

Commenting on the results, Bill Dobbie, Chairman of Castle Street Investments plc, said:

"As stated in our December 2014 circular, the Company has now transitioned from an online dating company into a well capitalised investment vehicle. We are beginning to review selective opportunities that meet our investment criteria, and are considering a combination of cash returns and finding an attractive investment opportunity to propose to shareholders."

For further information please contact:

Notes to Editors:

· Castle Street Investments plc is an Investing Company under Rule 15 of the AIM Rules.

· Further information on the Company can be found at castlestreetinvestments.com

Chairman's statement

In the 2013 Annual Report, we identified a three-year strategy focused around enhancing the core dating offering while identifying new opportunities outside dating with our digital capability. This was a challenging assignment and we made significant operational progress in the first six months of 2014, delivering a series of key products and initiatives. At the same time the rate of change in the dating market accelerated as applications like Tinder gained share and put pressure on traditional models. Accordingly in September 2014 the Board announced that, in response to the accelerating rate of change in the dating market, which was having a damaging impact on our business and delaying the trading recovery, it was carrying out a strategic review of its dating business with the intention of maximising shareholder value and arresting the Company's cash burn.

We reported back to our shareholders on 5 December 2014 that the Group had conditionally agreed to sell its Traditional Dating Assets to Tradax IP Licensing Limited, Together Networks Holdings Limited, and Together Networks Limited, for a total consideration of £3m. Given the proposed disposal of the traditional dating assets and the change of status to an investing company, it was considered advantageous for shareholders to effect the repayment of the deferred consideration in a shorter timeframe, making funds available to shareholders earlier and reducing the payment risk. We therefore further reported that in order to more quickly realise the outstanding deferred consideration owed by Grendall in relation to the disposal of the Company's Casual Dating business in July 2013, the amount would be reduced from £20m to £12.5m and payment would be accelerated such that all the Casual Dating Payments will be received by 15 December 2015 (previously 15 November 2016).

The transaction was approved at a General Meeting of the shareholders on 23 December 2014 and the transaction completed on 24 December 2014.

The Disposal also resulted in the Company becoming an Investing Company, and its Investing Policy was duly approved by the Shareholders at the same General Meeting.

Since that point we have been focused on ensuring a smooth exit from the dating business and related liabilities and turning the Company into a well-capitalised cash shell that can be utilised for new opportunities in line with our proposed Investing Policy or to support a return to shareholders. I am pleased to be able to say that we now expect to close 2015 with a net £20m available for investment and/or return, £2m better than anticipated. We are proceeding with the planned reduction of capital, which is expected to be heard by the Scottish Courts at the end of April 2015 and, if successful, will create distributable reserves of approximately £19m. No dividend is proposed in respect of 2014 at this point but, subject to appropriate investment opportunities, we anticipate bringing a proposal to shareholders for an initial distribution, probably by way of a tender offer, before the end of December 2015.

In February 2015 we welcomed Max Royde onto our Board. Mr Royde is a Partner at Kestrel Partners LLP, a significant shareholder. Mr Royde brings a wealth of relevant experience to support the identification and evaluation of potential opportunities in line with our Investing Policy.

Finally, I'd like to express my thanks to our three outgoing directors, George Elliott, Ian McCaig and Russ Shaw for their efforts in support of the Company.

Bill Dobbie

Non-Executive Chairman

24 March 2015

Review of Performance

Review of 2014

2014 was a very challenging year for the Company. We started the year full of optimism but with no illusions as to the scale of the challenge ahead if we were to succeed in transforming an underperforming traditional dating business and to prepare the way for an evolution into a broad based digital services business. Whilst we made some significant progress in many areas in the early part of the year it became clear that the market was undergoing a sea change that would seriously delay our recovery. Strenuous efforts to reduce the underlying cost base resulted in us successfully reducing the rate of loss, but with trading deteriorating a return to profitability was receding. Following a review of the strategic options open to us it became clear that the best course for our investors was to sell the remaining business, and conserve as much cash as possible for a return to shareholders or a new investment opportunity. With the backing of our shareholders we completed the disposal on Christmas Eve. In summary, the impact of this decision on the results for the year was as follows:

Financial review

The 2014 financial performance of the business reflects the impact of the disposal in 2013, the challenging year in general and the consequences of restructuring the mainstream core dating assets. The underlying trading demonstrates the efforts to throttle back costs and invest tactically in marketing while revenue softened. The net result was a significantly lower trading loss.

Group (loss)/profit

At a headline level our revenues including discontinued operations fell 78% to £12.6m (FY 2013: £56.1m) and adjusted EBITDA1 fell to a loss of £0.9m (FY 2013: profit of £0.5m). Depreciation and amortisation fell to £2.2m (FY 2013: £6.9m) reflecting the disposal of the casual assets and lower website development expenditure. Exceptional costs include £1.2m for costs associated with termination of employee contracts, £1.1m for the actual or expected settlement of patent and trademark infringement claims in the US, and £0.8m for committed costs under onerous contracts, including property leases in the UK and France.

To present a picture of the underlying performance of the traditional dating business it is necessary to back out £2.25m of one-off adjustments to accruals and other provisions. On a pro forma basis revenue fell by £10m (45%). Despite the impact of new launches in 2014, tactical deployment of marketing meant that contribution improved to 31%. Stringent control of costs meant that direct and administrative expenses were reduced by £7.2m (51%) and consequently the adjusted EBITDA loss improved to £3.1m (FY 2013: loss £7.4m).

1Adjusted EBITDA is defined as earnings before interest, tax, depreciation, amortisation, share based payments, acquisition costs and restructuring costs and exceptional costs.

Loss on disposal

The pre-tax loss on disposal of £7.6m reflects both the adjustment to the 2013 sale of the casual assets and the disposal of the traditional dating business in 2014. The pre-tax loss on disposal of the traditional dating assets is £1.3m. After adjusting for the unwinding of the financial discount the previously reported gain on the casual disposal is reduced by £6.2m before tax. The remaining value of the consideration from the sale of the casual assets of £11.5m has been discounted by £0.5m in accordance with IFRS 13. This discount is expected to unwind by the end of 2015 as the terms of the deferred consideration payments are fulfilled.

Tax charge

The effective tax rate is 8.6% (FY 2013: 9.1%). The lower effective tax rate in 2014 is due largely to the book value of the disposed assets being higher than the tax base.

Finance income

Finance income mainly relates to the unwinding of the discount on the casual dating deferred consideration.

Balance sheet

All intangible assets were removed on disposal or written off. With the acceleration of the payment of the deferred consideration there are no longer any non-current assets. The deferred consideration debtor after discounting in line with IFRS 13 is £11.7m, comprising £11.5m relating to the casual asset disposal, £0.7m relating to the traditional asset disposal, offset by a £0.5m discount. All payments due to date under the sale have been received in line with the agreed schedule. The fall in trade and other receivables reflects the closure of the business. Trade and other payables have similarly decreased by £6.1m. Reserves are reduced by £2.1m as a consequence of the dividend paid in respect of the prior year and by £10.6m in respect of the loss for the year.

Cash flow

Our closing cash position remains strong at £12.1m (FY 2013: £12.6m). The operating cash outflow is £5.8m (FY 2013: inflow £3.6m) with the trading loss and the reduction in trade payables. Disposal proceeds reflect the £2.25m received to date for the 2014 disposal, less costs, plus receipts from Grendall in respect of the 2013 disposal. £1.2m was capitalised in respect of software development (FY 2013: £2.5m). £2.1m has been returned to shareholders in dividend payments.

Dividend

The directors do not propose a dividend in respect of the current financial year.

Update and outlook for 2015

Since the end of the year we have successfully completed the majority of the transition of the dating business with payment processing migration, the main outstanding area, expected to be substantially complete by the end of June 2015.

The deferred consideration of £0.75m in respect of the traditional asset sale was received in February 2015. The Mimir Data business has been reassessed and now closed with a saving of £0.25m against forecast.

The majority of December 2014 accruals and trade creditors will be settled by the end of March 2015 but significant provisions remain in respect of closure costs, patent claims and employment tribunals. Compared to the 5 December estimate we are making positive progress. Closure costs and other provisions are £1m lower than expected and this coupled with careful management of costs in the last quarter means that the expected net cash balance in December 2015 will be approximately £20m, £2m better than the previous forecast.

The application to the Court to effect the cancellation of reserves is under way and the Court hearing to approve the reduction is expected to take place at the end of April 2015. If successful this will create a distributable reserve of approximately £19m, £2m better than expected. Conditional upon the cancellation of reserves becoming effective, the Board expects to offer all Shareholders the opportunity to realise some of their investment in the Company by means of a tender offer. Any such tender offer will be subject to separate Shareholder approval at the appropriate time. The extent of any such tender offer will also be dependent on investment plans at that point in time.

Phil Gripton Niall Stirling

Chief Executive Officer Chief Financial Officer

24 March 2015

Consolidated statement of comprehensive income

for year ended 31 December 2014

Unaudited

There are no results relating to continuing operations.

Consolidated balance sheet

As at 31 December 2014

Unaudited

Statement of changes in equity

Unaudited

Cash flow statement

for year ended 31 December 2014

Unaudited

All cash flows are attributable to the operating, investing and financing activities of discontinued operations.

Notes

(forming part of the financial statements)

1 Background and basis of preparation

Castle Street Investments plc is a company incorporated and domiciled in the UK. Its registered office is at 7 Castle Street, Edinburgh EH2 3AH.

The financial information set out in the announcement does not constitute the company's statutory accounts for the years ended 31 December 2014 or 2013. The financial information for 2013 is derived from the statutory accounts for 2013, which have been delivered to the registrar of companies. The auditor has reported on the 2013 accounts; their report was (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006. The statutory accounts for 2014 will be finalised on the basis of the financial information presented by the directors in this preliminary announcement and will be delivered to the Registrar of Companies in due course.

2 Exceptional costs

Exceptional costs include £1.2m for costs associated with termination of employee contracts, £1.1m for the actual or expected settlement of patent and trademark infringement claims in the US, and £0.8m for committed costs under onerous contracts, including property leases in the UK and France. See also note 11 (contingent liabilities).

3 Taxation

Reductions in the UK corporation tax rate to 21% (effective from 1 April 2014) and 20% (effective from 1 April 2015) were substantively enacted on 2 July 2013. This will reduce the company's future current tax charge accordingly.

4 (Loss)/Earnings per share

Basic (loss)/earnings per share

The calculation of basic (loss)/earnings per share at 31 December 2014 was based on the loss attributable to ordinary shareholders of £10,628,000 (2013: £14,090,000 profit) and a weighted average number of ordinary shares outstanding of 71,201,642 (2013: 77,862,287) calculated as follows:

Diluted (loss)/earnings per share

The calculation of diluted (loss)/earnings per share at 31 December 2014 was based on the loss attributable to ordinary shareholders of £10,628,000 (2013: £14,090,000 profit) and a weighted average number of ordinary shares outstanding after adjustment for the effects of all dilutive potential ordinary shares of nil (2013: 1,630), calculated as follows:

The average market value of the Company's shares for purposes of calculating the dilutive effect of share options was based on quoted market prices for the period during which the options were outstanding. The measure of adjusted (loss)/earnings per share, as calculated above, is a non-statutory measure that we believe is useful to investors and is commonly used to evaluate the performance of businesses where M&A activity is significant.

5 Trade and other receivables

6 Trade and other payables

7 Provisions

8 Capital and reserves

The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company. The Board's policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. The Board monitors the return on capital and the level of dividends to ordinary shareholders.

12,169,978 shares held on treasury were cancelled in December 2014. The result is that the Company has 71,201,993 ordinary shares issued and fully paid up as at the closing balance sheet date of 31 December 2014.

No further new ordinary shares have been issued since the end of the financial year to the date of this report.

Share premium account

Reserves

Castle Street Investments plc has five reserves other than share capital, namely the foreign currency translation reserve, share options reserve, capital redemption reserve, retained earnings, and merger reserve (where the difference between the consideration paid and the capital of the acquiree on any common control transaction is reflected).

Dividends

The following dividends were recognised during the period:

9 Principal risks and uncertainties

The directors believe that the principal risks and uncertainties of the business are:

Deferred consideration

At the balance sheet date, there is a deferred consideration receivable of £12.2m in relation to the disposal of the casual assets in July 2013 and the disposal of the traditional assets in December 2014. There is a risk that the full amount due is not received, but the Group has applied a discount of £0.5m to the gross amount to reflect the perceived default risk. The full amount due is also secured on the assets of the purchaser and a further £1m is held in escrow.

Provisions and other amounts payable relating to discontinued business

At the balance sheet date the Directors have made provisions and recorded payables which due to their nature are judgemental. While the provisions reflect the Directors' best estimates of the likely outflow of funds there is a risk that additional amounts may be payable in a worst case scenario.

10 Discontinued operations

The assets disposed of were as follows:

The total tax credit attributable to the disposal of all discontinued operations amounts to £527,000.

11 Contingent liabilities

Following the disposal of the dating assets of the business in 2013 and 2014 and the resulting cessation of trade, the Directors have made estimations of liabilities associated with the settlement of patent and trademark infringement claims, labour disputes, onerous lease contracts, legal and warranty claims, and taxation. In each of these matters some degree of judgement has necessarily been applied and where appropriate the Directors have sought external advice. The Directors estimate that the maximum amount of any additional liabilities is £4.0m but are confident they will be settled within the amounts provided in the financial statements.

12 Posting of report and accounts

The Report and Accounts will be published around 26 March 2015 on the Company's website:

castlestreetinvestments.com/investors/results-reports/